Chapter 3
Page 90.
1. SDJ, Inc.
Current Assets = Current Liabilities + NWC = 2630 + 5970 = $8600
Current ratio = Current Assets / Current Liabilities= 8600 / 5970 = 1.4405 times
Quick ratio = (Current Assets - Inventories)/ Current Liabilities (8600-3860)/5970 = 0.794
times
2. Denver, Inc.
Profit Margin = Net income / Sales
➔ Net Income = Sales * Profit Margin = 14.2 * 5% = $0.71 million
ROA = Net Income / Total Asset = 0.71 / 11.3 = 0.0628 or 6.28%
ROE = Net Income / Total Equity = 0.71 / (11.3-4.9) = 0.1109 or 11.09%
6. Bolton Corp.
Net Income = Additional to retain earning + Dividends = 435000+245000 = $680000
EPS = 680000/175000= $3.8857 per share
Dividends per share = 245000/175000 = $1.4 per share
Book value per share = Total Equity / Share outstanding = 5700000/175000 = $32.5714
per share
If the stock currently sells for $78 per share,
Market-to-book ratio = Price per share / Book value per share = 78 / 32.5714 = 2.3947
(times)
Price-earnings ratio = Price per share / EPS = 78 / 3.8857 = 20.0736 times
Price-sales ratio = Total Market Capitalization / Total sales = 78*175000 / 7450000 =
1.8322 times
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9. Ortiz Corp.
Information
Cash
Decrease in inventory by $425
+425
Decrease in account payable by 230
-230
Increase in notes payable by 280
+280
Increase in account receivable by 290 -290
Change in Cash
➔ Cash increase by $185
12. Kodi Company
Debt-equity = 0.63
185
ROA = 8.4%
Total Equity = $645000
Equity multiplier = Total asset / Total equity = 1 + Debt-equity ratio = 1+0.63=1.63
ROE = Equity multiplier * ROA = 1.63 * 8.4% = 0.13692 or 13.692%
Net income = ROE*Total equity = 13.692% * 645000 = $88313.4
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18. Y3K, Inc.
Sales = $5987
Total assets = $2532
Debt-equity ratio = 0.57
ROE = 11%
Net income = ?
Total Debt = 0.57 * Total Equity
Total Debt + Total Equity = Total Asset
1.57 * Total Equity = 2532
--> Total Equity = 2532 / 1.57 = $1612.7389
Net income = ROE * Total Equity = 1612.7389 * 11% = $177.4013
20. Mikado Company
LTD Ratio = LTD / (LTD + Total Equity) = 0.35
Current ratio = 1.45
Current liabilities = $1140
Sales = $8370
Profit margin = Net income / Sales = 8.3%
ROE = 16.5%
Net income = Sales * Profit Margin = 8370*8.3% = $694.71
Total Equity = Net income / ROE = 694.71 / 16.5% = $4,210.3636
LTD = 0.35 * ( LTD + Total Equity)
--> LTD = $2267.1189
Total asset = Total debt + Total equity = current liabilities + LTD + Total equity =
1140+2267.1189+4210.3636= $7617.4825
Current asset = Current ratio * Current liabilities = 1.45*1140 = $1653
Net fixed asset = Total asset - Current asset = 7617.4825 - 1653 = $5964.4825
24. Cage Corp.
Current liabilities = $415000
Quick ratio = 0.86
Inventory turnover = 10.3
Current ratio = 1.34
COGS = ?
Current asset = Current ratio * Current liabilities = 1.34*415000=$ 556100
Quick ratio = (Current asset - Inventories) / Current liabilities
--> Inventories = $199200
Inventories turnover = COGS / Inventory
--> COGS = 10.3 * 199200 = $2051760
Chapter 4
Page 123
6. Mandy Co.
Retention ratio = 1 - Payout ratio = 1 - 30% = 0.7 or 70%
ROA = Net income / Total asset = 4108/35500 = 0.1157
Internal growth rate = (ROA * Retention ratio) / (1 - (ROA * Retention ratio) =
0.1157*0.7/(1-0.1157*0.7) = 0.0881 or 8.81%
7. Mandy Co.
ROE = Net income / Total Equity = 4108 / 21900 = 0.1876
Sustainable growth rate = ROE * Retention ratio / (1-ROE*Retention ratio) =
0.1876*0.7/(1-0.1876*0.7) = 0.1512 or 15.12%
Page 125
18. Gamgee Co.
Dividend payout ratio = 25% --> Retention ratio = 0.75
Growth rate = ROE * Retention ratio / (1-ROE*Retention ratio) = 11%
--> ROE = Net income / Total equity = 13.21%
Total asset / Sales = 0.65
Debt-equity = Total debt / Total equity = 0.75
Equity Multiplier = Total asset / Total equity = 1 + Debt-Equity ratio = 1+0.75=1.75
Profit margin = Net income / Sales = ROE * Total asset to sales ratio / Equity multiplier =
13.21%*0.65/1.75 = 0.0491 or 4.91%
20. Hendrix Guitars, Inc.
Profit margin = NI / Sales = 5.9%
Total asset turnover = Sales / Total assets= 1.15
Total debt ratio = Total debt / Total assets = 0.45 --> Total equity / Total assets = 0.55
Payout ratio = 40% --> Retention ratio = 60%
ROE = Profit margin * Total asset turnover * Total asset / Total Equity = 5.9% * 1.15 *
1/0.55 = 0.1234
Sustainable growth rate = ROE * Retention ratio / (1-ROE*Retention ratio) = 0.1234 *
0.6 / (1-0.1234*0.6) = 0.07996 or 7.996%